Apple Inc. (AAPL) - China Mobile (CHL) Deal: Costly iPhone Deal Forecasts Drop In Profits

  @mflorcruzm.florcruz@ibtimes.com on January 03 2014 12:44 PM
China Mobile
A laborer works in front of a sign for China Mobile at the company's office in downtown Shanghai March 11, 2013. Reuters

Chinese phone carrier China Mobile secured a high-profile deal with Apple Inc. (NASDAQ:AAPL) to sell iPhones, but it may be less profitable than anticipated. 

Analysts said that earnings for the world’s largest mobile carrier, with an estimated 760 million subscribers, are expected to take a dip because of steep capital outlays for building a new 4G network and in anticipation of additional costs for handset subsidies. China Mobile announced it would be rolling out its iPhones later this month in time for the launch of its newly established, faster 4G network.

According to a report by the Wall Street Journal, Colin McCallum, a Credit Suisse analyst, has reduced his net profits forecast by 9.1 percent, in addition to lowering the target price by 6 percent, down to 94 Hong Kong dollars. Similarly, Marvin Lo, an analyst at Mizuho Securities, is estimating China Mobile (HKG:0941) will have a 10 percent dip in net profits this year, 7 percent of which would be the result of handset subsidy costs.

China Mobile will finally be joining the country’s other, smaller mobile carriers, China Unicom and China Telecom, in offering iPhone plans, which they have been offering since 2009 and 2012, respectively. However, both competing carriers will still only be operating on 3G networks. Though China Mobile’s new iPhone deal, coupled with the soon-to-be-launched fourth-generation network speed, should be able to draw in profits eventually, it could take months.

“Share prices of China Telecom and China Unicom fell for about 6 moths after they announced the iPhone partnership agreements as the street was in a race to revise down earnings incorporating handset subsidy expense,” Danny Chu, an analyst at Macquarie, said in the report. On top of that, other analysts expect 2013 to be the first profit decline for China Mobile since 1999 because of huge investments made in developing the new network.

 

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